Americans Could Face a Possible 17% Increase in 2013 Federal Income Taxes + Additional Increases in State/Local/Property Taxes! Here's How to Avoid Some of It

Lorimer Wilson November 29, 2012Comments Off on Americans Could Face a Possible 17% Increase in 2013 Federal Income Taxes + Additional Increases in State/Local/Property Taxes! Here's How to Avoid Some of It653 Views

…With the fiscal cliff on the horizon — more than $600 billion in spending cuts and tax increases coming January 2 — lawyer and certified public accountant Leon LaBrecque predicts in a Bankrate analysis that Americans could face a 17% increase in their 2013 federal income taxes, in addition to increases in state, local and property taxes and, if the nation slips into another recession, they’ll see a significant dent in their portfolios. [That being said, below are some suggestions on how to minimize such an impact by taking some evasive action before the beginning of the new year.] Words: 576

So says Jennifer A. Johnson (www.TheFiscalTimes.com) in edited excerpts from her original article* entitled 4 Ways Retirees Can Survive the Fiscal Cliff.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), may have edited the article below to some degree for length and clarity – see Editor’s Note at the bottom of the page for details. This paragraph must be included in any article re-posting to avoid copyright infringement.

Capital Gains and Stock Dividends

Taxes on income from capital gains and stock dividends are slated to take a hefty hike if the Bush-era tax cuts aren’t extended….

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Long-term capital gains — the tax paid on the difference between the price of an asset when it’s sold and its original cost, would rise from 15% to 20%, or 23.8% for high-income taxpayers, which includes a 3.8% tax on net investments that’s part of the Affordable Care Act. As such, you might want to take your capital gains this year if you have the financial wherewithal to do so…and, conversely, investors who know they are going to be selling assets at a loss may want to save them for next year.

The tax hike is even heftier for stock dividends: rates would soar from 15% to a maximum of 39.6%, or 43.4% for the wealthiest Americans, because qualified dividends would be taxed at the same rates as ordinary income in 2013.

Investments

Markets don’t like uncertainty, and this stalemate is no exception. If the stock market gets spooked by the fiscal cliff debate as negotiations drag on investors…could lose money [because] the markets are worried…[that] going over the cliff) could well throw the economy into a recession.

The risk of a declining stock market would be greatest for…[those] who are depending on assets in their 401(k) plans to retire. A drop in 401(k) assets means less income for retirement and since income taxes are slated to rise, those who have IRA accounts could pay more taxes on the money they take out next year. One option…[would be] to convert one’s IRA account to a Roth IRA, which grows tax free, and pay the income tax on the money transferred this year instead of later.

As part of the spending cuts mandated by Congress last year, Medicare Part D would get a 2% cut, which could increase out-of-pocket costs for Medicare recipients. Physicians who take Medicare patients could also see a pay cut, which might prompt more to stop accepting Medicare. Anyone on Medicare should talk to their doctor now about his or her plans and begin researching alternatives just in case. Social Security and Medicaid, however, are exempt from the cuts.

Estate and Gift Taxes

For…[those] looking to transfer assets to their children, the next month could be the best time to do so, as estate and gift taxes could face a hefty increase….[Those] who can afford to make a large gift may want to consider doing so by the end of the year. For the 2012 tax year, Americans with estates worth more than $5.1 million will pay an estate tax of 35% and, if no changes are made, individuals with estates worth more than $1 million will pay a 55% tax in 2013.

Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

<img title=”cliff_dive” src=”http://www.munknee.com/wp-content/uploads/2012/11/cliff_dive-90×65.jpg” alt=”cliff_dive” width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2012/11/cliff_dive-90×65.jpg” data-lazy-type=”image” /><img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2012/11/cliff_dive-90×65.jpg” alt=”cliff_dive” title=”cliff_dive” />If Congress addresses the issue by maintaining the current tax and spending policies we will get more of the same economy we have experienced for the past three years (all else being equal). [That being said,] what if Congress goes over the fiscal cliff hit? This blog post is designed to asses the impact. Words: 1362

<img title=”investing4″ src=”http://www.munknee.com/wp-content/uploads/2011/08/investing4-90×65.jpg” alt=”investing4″ width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2011/08/investing4-90×65.jpg” data-lazy-type=”image” /><img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2011/08/investing4-90×65.jpg” alt=”investing4″ title=”investing4″ />Screams about how these top-bracket income tax and capital-gains tax increases will ruin the economy by hammering spending and eliminating the incentive to work can be seen for what they are – the whining of people who don’t want their taxes to go up [BUT, when it comes to the possible increase in the top tax on dividends they have a point – a BIG point – a VERY big point. Let me explain.] Words: 450

<img title=”inflationprinting-money-300×199″ src=”http://www.munknee.com/wp-content/uploads/2012/10/inflationprinting-money-300×199-90×65.jpg” alt=”inflationprinting-money-300×199″ width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2012/10/inflationprinting-money-300×199-90×65.jpg” data-lazy-type=”image” /><img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2012/10/inflationprinting-money-300×199-90×65.jpg” alt=”inflationprinting-money-300×199″ title=”inflationprinting-money-300×199″ />Financial repression occurs when governments channel funds into their own sovereign bonds in order to reduce debt levels through mechanisms such as directed lending, caps on interest rates, capital controls, debt monetization, or by other means. The promise of financial repression is that it will hold down government borrowing costs and reduce government debt levels, but critics argue that financial repression merely targets the producers of society, i.e., the middle class, and therefore harms the economy. Let’s take a look at financial repression ands its supposed pros and cons. Words: 1486

<img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2011/07/dollar-cash-money-hundred-90×65.jpg” alt=”dollar-cash-money-hundred” title=”dollar-cash-money-hundred” />Now that President Obama has been re-elected, Obamacare will become reality and that means that a lot more people in the United States will have health insurance and, if the program works as it is supposed to, it also means that the growth of healthcare spending overall will eventually slow. Both of those are good but, in the near term, Obamacare also means a lot of people will be paying more taxes and higher insurance premiums. (You didn’t think Obamacare was free, did you?) Below are some of the new taxes you’re going to have to pay to pay for Obamacare. Words: 565

<img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2012/03/10623945-the-word-debt-in-the-american-flag-colors-americans-in-debt-90×65.jpg” alt=”10623945-the-word-debt-in-the-american-flag-colors-americans-in-debt” title=”10623945-the-word-debt-in-the-american-flag-colors-americans-in-debt” />It’s the shrunken tax base, not lower tax rates, which is responsible for today’s revenue shortfall. A healthier economy and faster jobs growth would do much more to close the deficit than any amount of higher tax rates on the rich. Raising tax rates might weaken the economy further, and that would make it much more difficult to generate higher tax revenues. [The truth of the matter is that] nobody’s taxes need to be raised, and nobody’s spending needs to be cut—the U.S. economy is already on a glide path to the restoration of fiscal sanity. Washington: are you listening? Words: 1190

<img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2012/07/financial-cliff-90×65.jpg” alt=”financial cliff” title=”financial cliff” />The warnings that the fiscal cliff will cause a recession are delivered as if the government can decide whether or not we have a recession. In fact, the government does not have that power, or we would never have recessions. At the most, the government can influence when, not if, we have a recession. We will most likely undergo a recession when we wean ourselves off the unsustainable deficit spending of the last four years. The choice is not recession or no recession. The choice is recession now or recession later. [Let me explain.] Words: 542

<img title=”shapeimage_25″ src=”http://www.munknee.com/wp-content/uploads/2012/06/shapeimage_25-90×65.png” alt=”shapeimage_25″ width=”90″ height=”65″ data-lazy-type=”image” data-lazy-src=”http://www.munknee.com/wp-content/uploads/2012/06/shapeimage_25-90×65.png” /><img title=”shapeimage_25″ src=”http://www.munknee.com/wp-content/uploads/2012/06/shapeimage_25-90×65.png” alt=”shapeimage_25″ width=”90″ height=”65″ data-lazy-src=”http://www.munknee.com/wp-content/uploads/2012/06/shapeimage_25-90×65.png” data-lazy-type=”image” />A new financial policy initiative known by the label “Financial Repression” may soon become our worst nightmare. ‘Repression’ rhymes with ‘depression’ which could be what we have to look forward to as rampant price inflation and permanently lower living standards take hold. Get ready to be conscripted into a citizen army assembled for the greater cause of saving the nation from being swamped by a tsunami of debt. Let me explain. Words: 1585

<img title=”economy6″ src=”http://www.munknee.com/wp-content/uploads/2011/08/economy6-90×65.jpg” alt=”economy6″ width=”90″ height=”65″ data-lazy-type=”image” data-lazy-src=”http://www.munknee.com/wp-content/uploads/2011/08/economy6-90×65.jpg” /><img width=”90″ height=”65″ src=”http://www.munknee.com/wp-content/uploads/2011/08/economy6-90×65.jpg” alt=”economy6″ title=”economy6″ />“Regardless of whether or not you feel taxes need to be raised, a big set of tax hikes is scheduled to happen. To be sure, some of those hikes will be undone in compromises, but many if not most will sneak through.” [Let me explain.]

<img title=”27106″ src=”http://www.munknee.com/wp-content/uploads/2012/02/27106-90×65.gif” alt=”27106″ width=”90″ height=”65″ data-lazy-type=”image” data-lazy-src=”http://www.munknee.com/wp-content/uploads/2012/02/27106-90×65.gif” /><img title=”27106″ src=”http://www.munknee.com/wp-content/uploads/2012/02/27106-90×65.gif” alt=”27106″ width=”90″ height=”65″ />One of the things that’s being lost in the welter of rhetoric around the debt crises of sovereign nations is that these are not normal debtors, and government debt is not the same as personal debt. If you or I are in debt we are obliged to fulfil the terms of our repayment obligations or to go bankrupt or to pretend to die and go off and live on the life insurance. A country in the same situation has a range of other measures available to it…[Let’s explore their options and what their implications would be for the country and its citizens.] Words: 1145

<img title=”dollar sign” src=”http://www.munknee.com/wp-content/uploads/2011/09/dollar-sign-90×65.jpg” alt=”dollar sign” width=”90″ height=”65″ data-lazy-type=”image” data-lazy-src=”http://www.munknee.com/wp-content/uploads/2011/09/dollar-sign-90×65.jpg” /><img title=”dollar sign” src=”http://www.munknee.com/wp-content/uploads/2011/09/dollar-sign-90×65.jpg” alt=”dollar sign” width=”90″ height=”65″ />Financial Repression is a form of wealth confiscation and redistribution that is in some ways as effective as taxation – but the government never directly calls it that. It never appears in the budget (directly), and while it is dependent on a comprehensive network of laws and regulations – none of those go through the legislature with a stated intention of creating Financial Repression. So while the economic net effects are similar to a huge and comprehensive set of investor taxes being used to pay down the national debt, the “taxes” are never a campaign issue because voters and investors don’t understand what is happening – they only feel the results. [In this article I lay out for you what is slowly developing and expected to escalate dramatically in the next few years.] Words: 5800

<img src=”http://www.munknee.com/wp-content/plugins/bj-lazy-load/img/placeholder.gif” data-lazy-type=”image” data-lazy-src=”http://www.munknee.com/wp-content/themes/Transcript/images/thumbs/archive.jpg” alt=”” /><noscript><img src=”http://www.munknee.com/wp-content/plugins/bj-lazy-load/img/placeholder.gif” data-lazy-type=”image” data-lazy-src=”http://www.munknee.com/wp-content/themes/Transcript/images/thumbs/archive.jpg” alt=”” /><noscript><img src=”http://www.munknee.com/wp-content/themes/Transcript/images/thumbs/archive.jpg” alt=”” />“In our view, monetary policy has been boxed in by previous actions, election year politics (and even more broadly by the dynamics of the contemporary state of democracy), and the slowdown in global forex accumulation. The result, we expect, will be a continuation of financial repression under the most optimistic of scenarios. At the very least, returns on liquid capital could remain negative for many years to come. Under such circumstances, demand for the protection offered by gold should remain strong. Should the presumed economic recovery falter, we anticipate that the calls for renewed QE will be deafening.”

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